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In a lawsuit filed late Monday, the U.S. Department of Justice claims the credit rating firm Standard & Poor’s knew some $4 billion worth of mortgage-backed securities were risky. But, the government claims, S&P still gave those securities top ratings anyway, helping to fuel the nation’s mortgage meltdown.
Economic consultant Gary Shilling says Wall Street banks needed S&P’s stamp of approval.
“The rating agencies were working with [banks] to put the maximum amount of what was really very low-quality merchandise in there, securitize it, and sell it off to people who thought a “AAA” rating meant something,” says Shilling.
McGraw Hill, S&P’s parent company, posted a lengthy rebuttal on its website.
“What the government is claiming is just not so,” says Floyd Abrams, the company’s attorney.
George Washington University law professor Jeffrey Manns says this is the first time the government has sued a credit rating agency over the housing crisis.
“It may underscore that the federal government will take a more aggressive posture in the future in trying [hold] rating agencies accountable,” says Manns.
It’s expected Attorneys General from at least a dozen states will also file suit.
According to news reports, rescuers were able to insert a camera into the underground bunker where gunman Jimmy Lee Dykes held a boy for nearly a week. When they feared he might hurt little Ethan, authorities distracted Dykes with an explosion. Then they shot and killed Dykes. Ethan is safe.